Key takeaways
- The ECB’s rate cut follows a significant drop in inflation to 1.8%.
- Further reduction in rates expected by the markets by December.
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The European Central Bank (ECB) decided to cut interest rates by 25 basis points at its monetary policy meeting today, lowering the key rate from 3.5% to 3.25%. This is the bank’s third interest rate cut this year, after the inflation rate fell in September to a three-year low of 1.7%, below the estimate. initial of 1.8%.
The ECB’s decision was widely expected as inflation rates, including headline and core inflation, in the Eurozone were falling. Since inflation in September fell below the bank’s target of around 2%, pressure has diminished to raise interest rates to curb rising prices.
Additionally, ahead of the meeting, several ECB officials, including President Christine Lagarde and Banque de France Governor François Villeroy de Galhau, hinted to the possibility of a rate cut. Lagarde said she was convinced “that inflation will return to its target in due course.”
The ECB made its first rate cut in June, reducing its benchmark interest rate from 4% to 3.75%. Subsequently, the second reduction brought the rate down to 3.5% in September. Financial markets are expecting a further rate cut of 25 basis points to 3% in December following today’s decision.
Economic concerns are also among the factors that motivated the ECB’s decision. The eurozone economy is experiencing sluggish growth, and GDP is expected to stagnate in the third quarter.
Tight monetary policy and structural problems are contributing to the slowdown. Lower interest rates can boost economic activity amid growth challenges, slowing labor markets and geopolitical risks.
Lower interest rates are expected to boost economic growth and have a positive impact on traditional stock markets. This in turn could boost investor appetite for riskier assets like Bitcoin.
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